Standard Bank - Kitco

4
Bulks
Commodities
Commodities Daily — 13 June 2013
China’s steel markets behaved rather benignly today, despite being the first day back after the holidays, with last weekend’s
May key economic data releases (IP, FAI, CPI, trade) needing to be absorbed. Shanghai Equities were less sanguine, falling
2.74% back below the 2200 level, to 2148, as the market began to realise what the steel industry has known since mid-May:
that China is in the midst of a cyclical slowdown, particularly in urban areas, where housing completions and new starts are
both falling. With GDP growth at 7.7% in Q1, China could be heading for a slower rate for Q2. Some brokers have begun
further downgrading their forecasts. Beijing’s new leadership, under Xi and Li, are therefore already being given their first test:
will they buckle and support the market slightly with further monetary/fiscal policy measures, or will they continue on their
market reforms/market forces industry restructuring path? CPI rates appear to be giving them some wiggle-room for the
former.
Meanwhile, the PBOC didn’t conduct any cash-draining repurchase offers into the market today, with the 7-day Shanghai
interbank rate remaining at the high rate of 6.38%, significantly above our 3.5% squeal factor for ore and steel inventory
holders. A month ago, rates were at just 2.9%.
Shanghai Rebar Futures closed up a paltry RMB1/t at 3422. Although a Yangang weekly spot billet tender closed RMB26/t
lower w/w, spot billet prices fell only RMB10/t, having risen RMB20/t last weekend. However, rebar in Shanghai and Tianjin
enjoyed post-holiday restocking momentum, rising RMB30-50/t.
Among physical cargoes, BHPB sold a MAC fines Fe 60.5% cargo (21-30 laycan) via tender at $111.85/t, while the miner sold
a similar cargo on CBMX for $111.98/t, injecting confidence into the post-holiday market. globalORE has seen a number of
bids for June and July delivery enter its screens across the $105-110/t range, suggesting a level of mill interest is creeping
back into the markets. An off-screen offer of prompt Newman Fe 62.7% fines is being offered at $114/t. Meanwhile tomorrow,
RioT plans to conduct an Fe 61.4% PB fines cape cargo (27 June-6 July laycan) tender.
The TSI Fe 62% China CFR price index rose $1.10/t to $112/t (MTD: $112.74/t). The TSI Fe 58% index however remained flat
at $100.70/t.
Among IO supply news, China is to scrap its import licensing system from 1 July, opening the industry to ―market forces‖, in a
complete turnaround from CISA’s previous belief that controlling imports would somehow give mills greater control over
pricing. In reality, only greater supplies relative to demand can improve pricing for end-users. We are seeing this begin to take
hold now, given the increase in expansion tonnes from key seaborne supplies, particularly in Australia’s Pilbara region.
Guinea no longer expects RioT to begin shipping in 2015 from Simandou, which the government estimates could cost as much
as $20-25bln to develop. The country has decided to apply a 5% royalty rate to ore exports, although some refinements may
be required to the formula adopted thus far. Meanwhile, RioT continues to negotiate the sale of its stake in IOC.
Coking coal remains in the $136-140/t range, with negotiations yet to be completed with the Japanese, for Q3 contract volume
prices. Q2 prices had been set at $172/t Qld fob; although mills have given considerable push back subsequently, with prices
believed to be crossing below $150/t Qld fob already for certain contract volumes.
For Q3:13 thermal coal prices, API 2 is trading at $77.30/t; API 4 is trading at $77.30/t; while Newcastle is trading at $81.30/t.
By Melinda Moore